16 July 2015
Queensland Country Life
THE sliding dollar is sweetening Australia’s appeal as an agricultural investment destination ripe for overseas companies and fund managers, particularly from North America and Europe.
While the headlines are frequently all about new farm sector deals between Australian agribusinesses and players in key markets in developing Asia, a new age of ‘Down Under’ investment interest is dawning in global capital markets from more traditional backgrounds.
“We’re seeing strong interest from sources in the US and Europe who are looking at building long-term investment relationships,” said director with trans-Tasman corporate strategy and agribusiness advisory firm PPB Advisory, Tim Lee.
Individual pension funds and fund management firms, representing various superannuation or private wealth investor groups, were looking to Australia and New Zealand to diversify their capital portfolios with stakes in farm production and supply chain positions in processing or distribution.
“A noticeably greater number of firms and funds are declaring their wish to be in Australian agriculture,” Mr Lee said.
“They’re looking at a range of different commodity sectors, different geographic considerations and operations of varying scale – potentially spending anything from $25 million to $500m.”
Rising recognition of Australia’s agricultural development potential, and the local farm sector’s role as a valuable part of the food supply chain into Asia, had already generated significant investor momentum in the past year or two.
Market growth opportunities and optimism evolving from recent free trade agreements had heightened recognition of Australia and New Zealand, too.
But the lower exchange rate had really helped rev up inquiries and deals, particularly in the past six months.
Since November the dollar’s value has dropped from US87 cents to this month’s exchange rate around US74c – roughly a 15 per cent discount for any American group shopping for farmland or an Australian agribusiness investment, and almost 25pc cheaper than a year ago.
The change against the Euro has been more modest of late, but the dollar currently worth about E68 cents is still well down from highs of E80c 18 months ago.
‘No better time’
“At the moment the talk among pension fund managers in the US is definitely about our cheap dollar and how there’s no better time to invest in Australia,” said PPB director Ben Craw, who with Mr Lee recently returned from US and UK investor group meetings and the Global AgInvesting conference in New York.
“It was pretty clear in New York that we didn’t have to do much to promote Australian agriculture – they were already talking about it and understanding what was achievable.”
US investors, in particular, had made big strides in valuing the development potential in Australian land, especially for new era irrigation projects involving horticultural industries such as nuts.
With drought continuing to hammer the Californian farm sector, they recognised the risk management advantages of interests in Australia where water efficiency was already a prime consideration for farmers, and they liked the concept of water being a tradable asset separate from an landholding.
However, like Asian investors, the traditional money is also keen to spread its Australian footprint into consolidating a position across the whole supply chain to extract better returns from farm output, although not necessarily buying a 100pc share of any specific business in the link.
PPB partner and agribusiness head Greg Quinn said the trend towards shoring up supplies from the paddock to the customer was rapidly increasing across the industry, notably with recent mergers between meat marketer Sanger Australia and processor Bindaree Beef or the joint venture between Queensland processor
Australian Country Choice and the Acton Land and Cattle Company.
Chinese investors in particular regarded Australian meat and dairy investment opportunities as ideal for building food security channels back to China, but also to develop the valuable providence of Australian brands across Asia.
This could eventually expand to growing or processing similar products under the Australian brand names in other parts of Asia.
Slice of the action
The spending power of the big northern hemisphere pension funds or their big corporate-style investment intentions should not deter or intimidate family farmers from looking for a slice of the overseas investor action, according to Mr Craw.
“A family farming operation might be at the lower end of their spending scale, but the farming business has to first position itself to be investor-ready with the right management accountability and business structures in place,” he said.
PPB’s activities not only include assisting investors to find and buy into suitably tailored Australian agribusiness portfolios, but also guide farm sector asset operators on how to present their business in order to attract outside capital and expand.
The advisory firm boasts about 20 agribusiness specialists in Australia and New Zealand with a practical understanding of the economic and personal side of rural enterprises, and experience in resolving the complex issues which confront agribusiness.
Mr Craw said many overseas investors were seeking joint venture partnerships with local management experience.
However, farmers also had to accept that bringing in an outside partner meant the off-farm investor would have at least an equal say over the business’ future direction.
“It’s no longer a simple case of deciding you want to buy the place next door if it becomes available – that decision is no longer yours alone to make.”
Courtesy of Queensland Country Life